The ICT (Inner Circle Trader) framework offers a powerful approach to trading by helping traders understand how institutional traders operate in the market.
This guide will explain a simple ICT scalping strategy designed to help you capitalize on short-term market movements with a higher probability of success.
We will cover essential concepts and provide examples to illustrate the steps.
1. Understanding the Basics of ICT Scalping
Scalping involves taking multiple trades during a single trading session and profiting from small price movements. ICT’s scalping approach focuses on:
The key is to spot areas where institutions are likely to enter or exit the market, typically at key liquidity points, and use that knowledge to place short-term trades.
2. ICT Key Concepts for Scalping
To effectively use ICT strategies for scalping, it’s important to understand the following:
1. Market Structure
Market structure refers to the trend of the market—whether it’s bullish (higher highs, higher lows) or bearish (lower highs, lower lows).
ICT scalpers need to understand when the market is trending and when it’s in consolidation.
2. Liquidity Pools
Liquidity is often found at areas where retail traders place stop-loss orders, like above a previous swing high or below a previous swing low.
Institutions use these liquidity pools to fill their orders. As a scalper, you can capitalize on the liquidity sweeps that occur when price grabs liquidity before reversing.
3. Fair Value Gaps (FVG)
An FVG is an imbalance in price where there’s a gap between candles, usually caused by fast institutional moves.
These gaps tend to fill as the market seeks balance, offering an opportunity to scalp when price revisits the FVG.
3. Simple ICT Scalping Strategy: Step-by-Step
Step 1: Identify the Market Structure
Before placing any trades, identify the current market structure.
Is the market making higher highs and higher lows (bullish), or lower highs and lower lows (bearish)?
This will help you align your trades with the overall trend.
Example: Let’s say EUR/USD is in an uptrend, consistently forming higher highs and higher lows on the 5-minute chart.
This suggests that you should be looking for long scalping opportunities.
Step 2: Wait for a Liquidity Sweep
A liquidity sweep occurs when the price briefly breaks a key level (such as a recent high or low) to capture stop-loss orders from retail traders.
Once these stops are taken, institutions may enter the market, causing a reversal.
Example: During the London Open, price pushes below a recent low on EUR/USD, triggering sell stops.
Shortly after the sweep, price sharply reverses and starts moving upward.
Step 3: Identify a Fair Value Gap (FVG)
After the liquidity sweep, look for an FVG on a smaller time frame (like a 1-minute chart).
This is where price moved too quickly and created an imbalance. The gap is likely to fill as the market rebalances.
Example: After sweeping the lows, EUR/USD creates an FVG on the 1-minute chart between two candles.
As price retraces into this FVG, it provides an entry opportunity for a long scalp.
Step 4: Enter the Trade
Once the liquidity sweep occurs and price retraces into the FVG, you can place your trade.
- Entry: Enter a long trade as price taps into the FVG.
- Stop-Loss: Place your stop-loss just below the liquidity sweep, as price should not return to this level if the trade is valid.
- Take Profit: Aim for a small, consistent profit target (like 1:1 or 2:1 risk-to-reward ratio) since scalping relies on small moves.
Example of a Trade Setup:
- Pair: EUR/USD
- Market Structure: Bullish (Higher highs and higher lows)
- Liquidity Sweep: Price sweeps below a recent low at 1.1700, triggering sell stops.
- Fair Value Gap: An FVG forms between 1.1710 and 1.1715.
- Entry: Enter a long trade at 1.1710 as price taps into the FVG.
- Stop-Loss: Place the stop at 1.1695 (below the liquidity sweep).
- Take Profit: Target 1.1725, just below the next swing high.
4. Managing Risk in ICT Scalping
Risk management is crucial in any scalping strategy.
In ICT scalping, you typically use tight stop-loss levels since the aim is to capture small, quick moves.
Always ensure your risk-to-reward ratio is favorable, preferably at least 1:1 or higher.
Risk Example:
- Trade Size: $10,000 position size.
- Risk per Trade: 0.5% (or $50).
- Stop-Loss: 10 pips away from entry.
- Take Profit: 15 pips target, resulting in a $75 profit (1.5:1 risk-to-reward).
By sticking to small, manageable risks, you can scalp multiple times within a session without risking too much on any single trade.
5. When to Use the ICT Scalping Strategy
The best times to use this scalping strategy are during the most liquid periods of the trading day, such as:
- London Open (8:00 AM UK time)
- New York Open (9:30 AM EST)
These times coincide with institutional activity, making liquidity sweeps and FVGs more likely to occur.
6. Example: Scalping During New York Open on GBP/USD
Let’s say GBP/USD is in a downtrend, and at the New York Open (9:30 AM EST), price sweeps above a recent swing high, triggering buy stops. Shortly after, price reverses lower, forming an FVG.
- Liquidity Sweep: Price spikes to 1.3750, taking out buy stops.
- Fair Value Gap: An FVG forms between 1.3745 and 1.3740.
- Entry: You enter short at 1.3745 when price retraces into the FVG.
- Stop-Loss: Set your stop-loss at 1.3760, just above the liquidity sweep.
- Take Profit: Target 1.3725, capturing a 20-pip move.
This quick trade leverages the institutional liquidity sweep and imbalance in price to scalp profits within minutes.
7. Conclusion
ICT’s scalping strategy focuses on understanding institutional behavior, market structure, and liquidity.
By identifying liquidity sweeps and fair value gaps, you can enter high-probability trades during key market times.
This strategy requires discipline, especially with risk management, but can be highly effective for traders looking for short-term profits.
By mastering this simple approach, you can align your trading with smart money and consistently capitalize on small, precise moves in the market.
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